Money Talk

Pay Your Taxes or Congress May Send Out the Debt Collectors

Now, according to a report in the Washington Post, private debt collectors may be calling on taxpayers to collect “inactive tax receivables” if a bill pending in Congress makes it into law.

The cases that would be assigned to debt collectors include those in which the IRS can’t find the taxpayer and those that have been assigned for collection and more than a year has gone by without any contact from the taxpayer. Innocent spouses, those under age 18, taxpayers serving in combat zones, victims of identity theft and deceased taxpayers would be exempt.

It’s been tried before – twice in the past 18 years. And the results weren’t good, according to Nina Olson, the national taxpayer advocate, who was asked by some senators to weigh in on the matter. Olson works for the Taxpayer Advocate Service, an independent organization within the IRS that helps taxpayers resolve problems with the agency and recommends improvements.

TAS handled more than 3,700 cases involving taxpayers and debt collectors the last time these private companies were used. Both times (most recently in the three years ending in 2009) the government lost money by hiring private debt collectors. And taxpayers dealing with collectors were not too happy, either.

“Based on what I saw, I concluded the program undermined effective tax administration, jeopardized taxpayer rights protections, and did not accomplish its intended objective of raising revenue,” Olson wrote in a letter to members of Congress this week. “Indeed, despite projections by the Treasury Department and the Joint Committee on Taxation that the program would raise more than $1 billion in revenue, the program ended up losing money.”

Olson says there’s no reason to believe that things would be different now.

She raised other concerns, too, including:

Private companies might misuse taxpayer information.

IRS workers are fired if they’re found to have abused taxpayers, but that’s not so for private collectors.

Even though some in Congress support the use of private debt collectors, it’s unclear whether taxpayers will embrace the idea.

Year after year, the practices of private debt collectors make up the second-largest number of complaints received by the Federal Trade Commission, after identity theft. Last year, 204,644 complaints – or 10 percent of all consumer gripes the agency received – concerned debt collection.